Explanation:
Weighted average maturity (WAM) is the weighted average amount of time until the maturities on mortgages in an MBS.
Step 1: Total value of portfolio
Total value = $150,000 + $100,000 + $50,000 + $80,000 = $380,000
Step 2: Compute the percentage value (weight) of each mortgage
$150,000 / $380,000 = 39.5%$100,000 / $380,000 = 26.3%$50,000 / $380,000 = 13.2%$80,000 / $380,000 = 21.0%Step 3: Multiply each weight by the remaining duration
Step 4: Sum the weighted durations WAM = 1.975 + 1.578 + 0.396 + 0.420 ≈ 4.4 years
The correct answer is A. 4.4
Q.3461 A mortgage-backed portfolio includes four mortgage investments as follows:
$150,000 in current value, 5% interest rate, 5 years remaining duration$100,000 in current value, 6% interest rate, 6 years remaining duration$50,000 in current value, 4% interest rate, 3 years remaining duration$80,000 in current value, 7% interest rate, 2 years remaining durationWhat is the weighted average maturity (n years) of the portfolio?
A
4.4
B
5.1
C
4.9
D
4.0
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